10. Commitments and Contingencies

The Company leases approximately 45,362 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in July 2016, collectively, the Lease. Total monthly lease payments under the initial base rent was approximately $242,000 and is subject to annual rent escalations. In addition to such annual rent escalations, base rent payments for a portion of said premises commenced on January 1, 2017 in the monthly amount of approximately $22,000. Landlord contributions included in the Lease from the landlord totaled $2,169,920, including $70,526 in leasehold improvements not yet utilized. The landlord contributions are being accounted for as a deferred lease incentive and reduction in monthly rent expense over the term of the Lease. The term of the Lease with respect to the office space expires on September 11, 2026, with one five year extension option available. The term of the Lease with respect to the lab space expires on November 30, 2021, with an extension option for one additional period of two years. The total security deposit in connection with the Lease of $1,280,857 is in the form of a letter of credit and is included in other assets in the Company’s consolidated balance sheets as of December 31, 2017 and December 31, 2016.

The Company recognizes rent expense for the space which it currently occupies and records a deferred lease obligation representing the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period, which is included in the Company’s consolidated balance sheets as of December 31, 2017 and December 31, 2016.

Under the Lease, the Company took possession of the remaining 3,384 square feet of office space on January 1, 2017, and subleased this space commencing on that date (the Sublease) as it did not intend to use the space for its operations. The term of the Sublease is two years and the monthly rent to be received by the Company is approximately $22,000. Under the Sublease, the Company’s operating lease obligations through 2018 are partially offset by future Sublease payments to it of approximately $0.3 million. The total security deposit in connection with the Sublease of $21,432 is included in other current assets and other liabilities in the Company’s consolidated balance sheets as of December 31, 2017 and December 31, 2016.

At December 31, 2017, the Company’s future minimum payments required under these leases are as follows:

			Lease Payments
	Operating		to be Received		Net Operating
	Lease		from Sublease		Lease Payments
	(in thousands)
2018	$	3,579	$	257	$	3,322
2019		3,626		—	$	3,626
2020		3,675		—	$	3,675
2021		3,684		—	$	3,684
2022		3,307		—	$	3,307
Thereafter		12,573		—	$	12,573
Total	$	30,444	$	257	$	30,187

The Company recorded approximately $3.2 million and $2.5 million in rent expense for the years ended December 31, 2017 and 2016, respectively.

Under the Company’s agreement with IQVIA, formerly known as Quintiles IMS, to provide CRO services for the PRO₂TECT and INNO₂VATE programs, the total remaining contract costs as of December 31, 2017 were approximately $276.4 million. The estimated period of performance for the committed work with IQVIA is through the first quarter of 2020. The Company contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $52.4 million at December 31, 2017. The scope of the services under these research and development contracts can be modified and the contracts cancelled by the Company upon written notice. In some instances, the contracts may be cancelled by the third party upon written notice.

The Company filed an opposition in Europe against FibroGen, Inc.’s, or FibroGen’s, European Patent No. 1463823, or the ’823 EP Patent, and an oral proceeding took place March 8 and 9, 2016. Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. FibroGen has appealed that decision and the appeal process is expected to take two to three years. Likewise, with regard to the invalidity proceeding that we filed in Japan against certain claims of FibroGen’s Japanese Patent No. 4804131, or the ’131 JP Patent, which is the Japanese counterpart to the ’823 EP Patent, the Japan Patent Office, or JPO, issued a preliminary decision finding all of the challenged claims to be invalid. FibroGen subsequently amended the claims and the JPO accepted the amendments. The resulting’131 JP Patent does not cover vadadustat or any pyridine carboxamide compounds. To date, FibroGen has been unsuccessful in its attempts to obtain a patent in the United States covering the same claim scope as it obtained initially in Europe and Japan in the ’823 EP Patent and ’131 JP Patents. In the event FibroGen were to obtain such a patent in the United States, the Company may decide to challenge the patent as we have done in Europe and Japan.

On May 13, 2015, May 20, 2015 and July 6, 2015, the Company filed oppositions to FibroGen’s European Patent Nos. 2322155, or the ’155 EP Patent, 1633333, or the ’333 EP patent, and 2322153, or the ’153 EP Patent requesting the patents be revoked in their entirety. These related patents claim, among other things, various compounds that either stabilize HIFα or inhibit a HIF hydroxylase or a HIF prolyl hydroxylase for treating or preventing various conditions, including, inter alia, iron deficiency, microcytosis associated with iron deficiency, anemia of chronic disease, anemia wherein the subject has a transferrin saturation of less than 20%, anemia refractory to treatment with exogenously administered erythropoietin, or EPO, and microcytosis in microcytic anemia. Such method of use patents do not prevent persons from using the compound for other uses, including any previously known use of the compound. In particular, these patents do not claim methods of using any of our product candidates for purposes of inhibiting hypoxia-inducible factor prolyl hydroxylases, or HIF-PHs, for the treatment of anemia secondary to CKD. While the Company does not believe these patents will prevent us from commercializing vadadustat for the treatment of anemia secondary to CKD, the Company filed these oppositions to provide us and our collaborators with maximum flexibility for developing vadadustat and the Company’s pipeline of HIF-PHIs.

Oppositions to the ’155 EP Patent and the ’153 EP Patent were also filed by Glaxo Group Limited, or Glaxo, and by Bayer Intellectual Property GmbH, Bayer Pharma Aktiengesellschaft, and Bayer Animal Health GmbH, or collectively Bayer.

With regards to the opposition that we filed in Europe against the ’333 EP patent, an oral proceeding took place on December 8 and 9, 2016. Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. On December 9, 2016, FibroGen filed a notice to appeal the decision to revoke the ’333 EP Patent.

In oral proceedings held on May 29, 2017 regarding the ‘155 EP Patent, the European Opposition Division ruled that the '155 EP Patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. FibroGen filed a notice to appeal the decision to revoke the ’155 EP Patent on May 29, 2017.

Subsequently, in related oral proceedings held on May 31, 2017 and June 1, 2017 for the '153 EP Patent, the European Opposition Division maintained the patent after FibroGen significantly narrowed the claims to an indication for which vadadustat is not intended to be developed. We and Glaxo separately filed notices to appeal the decision to maintain the ’153 EP Patent on November 9, 2017. Bayer filed a notice to appeal the decision on November 14, 2017.

The Company’s policy is to record a liability if a loss in a significant legal dispute is considered probable and an amount can be reasonably estimated. The Company provides disclosure when a loss in excess of any reserve is reasonably possible, and the Company is in a position to estimate the potential loss or range of possible loss. Significant judgment is required to assess the likelihood of various potential outcomes and the quantification of loss in those scenarios. The Company’s estimates change as litigation progresses and new information comes to light. Changes in Company estimates could have a material impact on the Company’s results and financial position.